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Executive Summary -----------------------------------------------------

Introduction ----------------------------------------------------------------
What Is An IPO ------------------------------------------------------------
Why Go Public -------------------------------------------------------------
Getting In An IPO ---------------------------------------------------------
IPO Advantages & Disadvantages ----------------------
Parameters To Judge An IPO ---------------------------------
Understanding The Role Of Intermediaries --
Registration Process -----------------------------------------------
IPO Scams -----------------------------------------------------------------------
Salient Features Of IPO Scams ------------------------------
Operational Deficiencies ---------------------------------------
Measures To Prevent Scams ----------------------------------
DEFINITIONS AND ABBREVIATIONS --------------------------
Bibliography ---------------------------------------------------------------



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CHAPTER I
INTRODUCTION

IPO stands for Initial Public Offering and means the new offer of shares
from a company which was previously unlisted. This is done by offering
those shares to the public, which were held by the promoters or the private
investors prior to the IPO. In the case when other investors or Promoter held
the shares the stake holding comes down to the extent their shares are
offered to the public. In other cases new shares are issued to the public and
the shares, which are with the promoters stay with them. In both cases the
share of the promoters in the total capital comes down.

For example say there are 100 shares in a company and 50 of these are
offered to the public in an IPO then in such a case the promoters stake in
the company comes down from 100% to 50%. In another case the company
issues 50 additional shares to the public and the stake of the promoter comes
down from 100% to 67%.

Normally in an IPO the shares are issued at a discount to what is considered
their intrinsic value and thats why investors keenly await IPOs and make
money on most of them. IPO are generally priced at a discount, which means
that if the intrinsic value of a share is perceived to be Rs.100 the shares will
be offered at a price, which is lesser than Rs.100 say Rs.80 during the IPO.
When the stock actually lists in the market it will list closer to Rs.100. The
difference between the two prices is known as Listing Gains, which an
investor makes when investing in IPO and making money at the listing of


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the IPO. A Bullish Market gives IPO investors a clear opportunity to achieve
long term targets in a short term phase.



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CHAPTER II
What is an IPO

An IPO is the first sale of stock by a company to the public. A
company can raise money by issuing either debt or equity. If the
company has never issued equity to the public, it's known as an IPO.

Companies fall into two broad categories: private and public.
A privately held company has fewer shareholders and its owners don't
have to disclose much information about the company. Anybody can
go out and incorporate a company: just put in some money, file the
right legal documents and follow the reporting rules of your
jurisdiction. Most small businesses are privately held. But large
companies can be private too. Did you know that IKEA, Domino's
Pizza and Hallmark Cards are all privately held?

It usually isn't possible to buy shares in a private company. You can
approach the owners about investing, but they're not obligated to sell
you anything. Public companies, on the other hand, have sold at least
a portion of themselves to the public and trade on a stock exchange.
This is why doing an IPO is also referred to as "going public."

Public companies have thousands of shareholders and are subject to
strict rules and regulations. They must have a board of directors and
they must report financial information every quarter. In the United
States, public companies report to the Securities and Exchange
Commission (SEC). In other countries, public companies are overseen


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by governing bodies similar to the SEC. From an investor's
standpoint, the most exciting thing about a public company is that the
stock is traded in the open market, like any other commodity. If you
have the cash, you can invest. The CEO could hate your guts, but
there's nothing he or she could do to stop you from buying stock.

The first sale of stock by a private company to the public, IPOs are
often issued by smaller, younger companies seeking capital to expand,
but can also be done by large privately-owned companies looking to
become publicly traded. In an IPO, the issuer obtains the assistance of
an underwriting firm, which helps it determine what type of security
to issue (common or preferred), best offering price and time to bring it
to market. IPOs can be a risky investment. For the individual
investor, it is tough to predict what the stock will do on its initial day
of trading and in the near future since there is often little historical
data with which to analyze the company. Also, most IPOs are of
companies going through a transitory growth period, and they are
therefore subject to additional uncertainty regarding their future value.

b) Primary and Secondary markets

In the primary market securities are issued to the public and the proceeds
go to the issuing company. Secondary market is term used for stock
exchanges, where stocks are bought and sold after they are issued to the
public.




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PRIMARY MARKET

The first time that a companys shares are issued to the public, it is by a
process called the initial public offering (IPO). In an IPO the company
offloads a certain percentage of its total shares to the public at a certain
price.

Most IPOS these days do not have a fixed offer price. Instead they follow a
method called BOOK BUILDIN PROCESS, where the offer price is placed
in a band or a range with the highest and the lowest value (refer to the
newspaper clipping on the page). The public can bid for the shares at any
price in the band specified. Once the bids come in, the company evaluates all
the bids and decides on an offer price in that range. After the offer price is
fixed, the company allots its shares to the people who had applied for its
shares or returns them their money.




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SECONDRY MARKET

Once the offer price is fixed and the shares are issued to the people, stock
exchanges facilitate the trading of shares for the general public. Once a stock
is listed on an exchange, people can start trading in its shares. In a stock
exchange the existing shareholders sell their shares to anyone who is willing
to buy them at a price agreeable to both parties. Individuals cannot buy or
sell shares in a stock exchange directly; they have to execute their
transaction through authorized members of the stock exchange who are also
called STOCK BROKERS.



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Chapter III
Why Go Public?

Basically, going public (or participating in an "initial public offering" or
IPO) is the process in which a business owned by one or several individuals
is converted into a business owned by many. It involves the offering of part
ownership of the company to the public through the sale of debt or more
commonly, equity securities (stock).

Going public raises cash and usually a lot of it being publicly traded also
opens many financial doors:

Because of the increased scrutiny, public companies can usually get
better rates when they issue debt.
As long as there is market demand, a public company can always
issue more stock. Thus, mergers and acquisitions are easier to do
because stock can be issued as part of the deal.
Trading in the open markets means liquidity. This makes it possible to
implement things like employee stock ownership plans, which help to
attract top talent.
Being on a major stock exchange carries a considerable amount of prestige.
In the past, only private companies with strong fundamentals could qualify
for an IPO and it wasn't easy to get listed.

The internet boom changed all this. Firms no longer needed strong financials
and a solid history to go public. Instead, IPOs were done by smaller startups
seeking to expand their businesses. There's nothing wrong with wanting to


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expand, but most of these firms had never made a profit and didn't plan on
being profitable any time soon. Founded on venture capital funding, they
spent like Texans trying to generate enough excitement to make it to the
market before burning through all their cash. In cases like this, companies
might be suspected of doing an IPO just to make the founders rich. This is
known as an exit strategy, implying that there's no desire to stick around and
create value for shareholders. The IPO then becomes the end of the road
rather than the beginning.

How can this happen? Remember: an IPO is just selling stock. It's all about
the sales job. If you can convince people to buy stock in your company, you
can raise a lot of money.



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CHAPTER IV
Getting In On an IPO

The Underwriting Process
Getting a piece of a hot IPO is very difficult, if not impossible. To
understand why, we need to know how an IPO is done, a process known as
underwriting.

When a company wants to go public, the first thing it does is hire an
investment bank. A company could theoretically sell its shares on its own,
but realistically, an investment bank is required - it's just the way Wall Street
works. Underwriting is the process of raising money by either debt or equity
(in this case we are referring to equity). You can think of underwriters as
middlemen between companies and the investing public. The biggest
underwriters are Goldman Sachs, Merrill Lynch, Credit Suisse First Boston,
Lehman Brothers and Morgan Stanley.

The company and the investment bank will first meet to negotiate the deal.
Items usually discussed include the amount of money a company will raise,
the type of securities to be issued and all the details in the underwriting
agreement. The deal can be structured in a variety of ways. For example, in a
firm commitment, the underwriter guarantees that a certain amount will be
raised by buying the entire offer and then reselling to the public. In a best
efforts agreement, however, the underwriter sells securities for the company
but doesn't guarantee the amount raised. Also, investment banks are hesitant
to shoulder all the risk of an offering. Instead, they form a syndicate of


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underwriters. One underwriter leads the syndicate and the others sell a part
of the issue.

Once all sides agree to a deal, the investment bank puts together a
registration statement to be filed with the SEC. This document contains
information about the offering as well as company info such as financial
statements, management background, any legal problems, where the money
is to be used and insider holdings. The SEC then requires a cooling off
period, in which they investigate and make sure all material information has
been disclosed. Once the SEC approves the offering, a date (the effective
date) is set when the stock will be offered to the public.

During the cooling off period the underwriter puts together what is known as
the red herring. This is an initial prospectus containing all the information
about the company except for the offer price and the effective date, which
aren't known at that time. With the red herring in hand, the underwriter and
company attempt to hype and build up interest for the issue. They go on a
road show - also known as the "dog and pony show" - where the big
institutional investors are courted.

As the effective date approaches, the underwriter and company sit down and
decide on the price. This isn't an easy decision: it depends on the company,
the success of the road show and, most importantly, current market
conditions. Of course, it's in both parties' interest to get as much as possible.
Finally, the securities are sold on the stock market and the money is
collected from investors.


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As you can see, the road to an IPO is a long and complicated one. You may
have noticed that individual investors aren't involved until the very end. This
is because small investors aren't the target market. They don't have the cash
and, therefore, hold little interest for the underwriters. If underwriters think
an IPO will be successful, they'll usually pad the pockets of their favorite
institutional client with shares at the IPO price. The only way for you to get
shares (known as an IPO allocation) is to have an account with one of the
investment banks that is part of the underwriting syndicate. But don't expect
to open an account with $1,000 and be showered with an allocation. You
need to be a frequently trading client with a large account to get in on a hot
IPO.

Bottom line, your chances of getting early shares in an IPO are slim to none
unless you're on the inside. If you do get shares, it's probably because
nobody else wants them. Granted, there are exceptions to every rule and it
would be incorrect for us to say that it's impossible. Just keep in mind that
the probability isn't high if you are a small investor.








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CHAPTER IV
IPO ADVANTAGES AND DISADVANTAGES

The decision to take a company public in the form of an initial public
offering (IPO) should not be considered lightly. There are several
advantages and disadvantages to being a public company, which should
thoroughly be considered. This memorandum will discuss the advantages
and disadvantages of conducting an IPO and will briefly discuss the steps to
be taken to register an offering for sale to the public. The purpose of this
memorandum is to provide a thumbnail sketch of the process. The reader
should understand that the process is very time consuming and complicated
and companies should undertake this process only after serious consideration
of the advantages and disadvantages and discussions with qualified advisors.

Advantages of going public
Increased Capital
A public offering will allow a company to raise capital to use for
various corporate purposes such as working capital, acquisitions,
research and development, marketing, and expanding plant and
equipment.
Liquidity
Once shares of a company are traded on a public exchange, those
shares have a market value and can be resold. This allows a company
to attract and retain employees by offering stock incentive packages to
those employees. Moreover, it also provides investors in the company
the option to trade their shares thus enhancing investor confidence.



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Increased Prestige
Public companies often are better known and more visible than private
companies, this enables them to obtain a larger market for their goods
or services. Public companies are able to have access to larger pools
of capital as well as different types of capital.
Valuation
Public trading of a company's shares sets a value for the company that
is set by the public market and not through more subjective standards
set by a private valuator. This is helpful for a company that is looking
for a merger or acquisition. It also allows the shareholders to know the
value of the shares.
Increased wealth
The founders of the company often have the sense of increased wealth
as a result of the IPO. Prior to the IPO these shares were illiquid and
had a more subjective price. These shares now have an ascertainable
price and after any lockup period these shares may be sold to the
public, subject to limitations of federal and state securities laws.












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Disadvantages of going Public
Time and Expense
Conducting an IPO is time consuming and expensive. A successful
IPO can take up to a year or more to complete and a company can
expect to spend several hundreds of thousands of dollars on attorneys,
accountants, and printers. In addition, the underwriter's fees can range
from 3% to 10% of the value of the offering. Due to the time and
expense of preparation of the IPO, many companies simply cannot
afford the time or spare the expense of preparing the IPO.
Disclosure
The SEC disclosure rules are very extensive. Once a company is a
reporting company it must provide information regarding
compensation of senior management, transactions with parties related
to the company, conflicts of interest, competitive positions, how the
company intends to develop future products, material contracts, and
lawsuits. In addition, once the offering statement is effective, a
company will be required to make financial disclosures required by
the Securities and Exchange Act of 1934. The 1934 Act requires
public companies to file quarterly statements containing unaudited
financial statements and audited financial statements annually. These
statements must also contain updated information regarding
nonfinancial matters similar to information provided in the initial
registration statement. This usually entails retaining lawyers and
auditors to prepare these quarterly and annual statements. In addition,
a company must report certain material events as they arise. This
information is available to investors, employees, and competitors.



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Decisions based upon Stock Price
Management's decisions may be effected by the market price of the
shares and the feeling that they must get market recognition for the
company's stock.
Regulatory Review
The Company will be open to review by the SEC to ensure that the
company is making the appropriate filings with all relevant
disclosures.
Falling Stock Price
If the shares of the company's stock fall, the company may lose
market confidence, decreased valuation of the company may effect
lines of credits, secondary offering pricing, the company's ability to
maintain employees, and the personal wealth of insiders and investors.
Vulnerability
If a large portion of the company's shares are sold to the public, the
company may become a target for a takeover, causing insiders to lose
control. A takeover bid may be the result of shareholders being upset
with management or corporate raiders looking for an opportunity.
Defending a hostile bid can be both expensive and time consuming.
Once a company has weighed the advantages and disadvantages of
being a public company, if it decides that it would like to conduct an
IPO it will have to retain a lead







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Parameters to judge an IPO

Good investing principles demand that you study the minutes of details prior
to investing in an IPO. Here are some parameters you should evaluate:-

Promoters
Is the company a family run business or is it professionally owned?
Even with a family run business what are the credibility and
professional qualifications of those managing the company? Do the
top level managers have enough experience (of at least 5 years) in the
specific type of business?

Industry Outlook
The products or services of the company should have a good demand
and scope for profit.

Business Plans
Check the progress made in terms of land acquisition, clearances from
various departments, purchase of machinery, letter of credits etc. A
higher initial investment from the promoters will lead to a higher faith
in the organization.








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Financials
Why does the company require the money? Is the company floating
more equity than required? What is the debt component? Keep a track
on the profits, growth and margins of the previous years. A steady
growth rate is the quality of a fundamentally sound company. Check
the assumptions the promoters are making and whether these
assumptions or expectations sound feasible.

Risk Factors
The offer documents will list our specific risk factors such as the
companys liabilities, court cases or other litigations. Examine how
these factors will affect the operations of the company.

Key Names
Every IPO will have lead managers and merchant bankers. You can
figure out the track record of the merchant banker through the SEBI
website.

Pricing
Compare the companys PER with that of similar companies. With
this you can find out the P/E Growth ratio and examine whether its
earnings projections seem viable.

Listing
You should have access to the brokers of the stock exchanges where
the company will be listing itself.



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Understanding the role of intermediaries

Who are the intermediaries in an issue?
Merchant Bankers to the issue or Book Running Lead Managers
(BRLM), syndicate members, Registrars to the issue, Bankers to the
issue, Auditors of the company, Underwriters to the issue, Solicitors,
etc. are the intermediaries to an issue. The issuer discloses the
addresses, telephone/fax numbers and email addresses of these
intermediaries. In addition to this, the issuer also discloses the details
of the compliance officer appointed by the company for the purpose
of the issue.

Who is eligible to be a BRLM?
A Merchant banker possessing a valid SEBI registration in accordance
with the SEBI (Merchant Bankers) Regulations, 1992 is eligible to act
as a Book Running Lead Manager to an issue.

What is the role of a Lead Manager? (pre and post issue)
In the pre-issue process, the Lead Manager (LM) takes up the due
diligence of companys operations/ management/ business plans/ legal
etc. Other activities of the LM include drafting and design of Offer
documents, Prospectus, statutory advertisements and memorandum
containing salient features of the Prospectus. The BRLMs shall ensure
compliance with stipulated requirements and completion of prescribed
formalities with the Stock Exchanges, RoC and SEBI including
finalization of Prospectus and RoC filing. Appointment of other
intermediaries viz., Registrar(s), Printers, Advertising Agency and


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Bankers to the Offer is also included in the pre-issue processes. The
LM also draws up the various marketing strategies for the issue.
The post issue activities including management of escrow accounts,
co-ordinate non-institutional allocation, intimation of allocation and
dispatch of refunds to bidders etc are performed by the LM. The post
Offer activities for the Offer will involve essential follow-up steps,
which include the finalization of trading and dealing of instruments
and dispatch of certificates and demat of delivery of shares, with the
various agencies connected with the work such as the Registrar(s) to
the Offer and Bankers to the Offer and the bank handling refund
business. The merchant banker shall be responsible for ensuring that
these agencies fulfill their functions and enable it to discharge this
responsibility through suitable agreements with the Company.

What is the role of a registrar?
The Registrar finalizes the list of eligible allottees after deleting the
invalid applications and ensures that the corporate action for crediting
of shares to the demat accounts of the applicants is done and the
dispatch of refund orders to those applicable are sent. The Lead
manager co-ordinates with the Registrar to ensure follow up so that
that the flow of applications from collecting bank branches,
processing of the applications and other matters till the basis of
allotment is finalized, dispatch security certificates and refund orders
completed and securities listed.





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What is the role of bankers to the issue?
Bankers to the issue, as the name suggests, carries out all the activities
of ensuring that the funds are collected and transferred to the Escrow
accounts. The Lead Merchant Banker shall ensure that Bankers to the
Issue are appointed in all the mandatory collection centers as specified
in DIP Guidelines. The LM also ensures follow-up with bankers to the
issue to get quick estimates of collection and advising the issuer about
closure of the issue, based on the correct figures.

Question on Due diligence
The Lead Managers state that they have examined various documents
including those relating to litigation like commercial disputes, patent
disputes, disputes with collaborators etc. and other materials in
connection with the finalization of the offer document pertaining to
the said issue; and on the basis of such examination and the
discussions with the Company, its Directors and other officers, other
agencies, independent verification of the statements concerning the
objects of the issue, projected profitability, price justification, etc.,
they state that they have ensured that they are in compliance with
SEBI, the Government and any other competent authority in this
behalf.








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What is the Registration Process?

Going public requires a Registration Statement which is a carefully crafted
document that is prepared by your attorneys and accountants. It requires
detailed discussions on information pertaining to:
Business product/service/markets
Company Information
Risk Factors
Proceeds Use (How are you going to use the money)
Officers and Directors
Related party transactions
Identification of your principal shareholders
Audited financials
After your registration statement is prepared, it is submitted to the Securities
and Exchange Commission and various other regulatory bodies for their
detailed review. When this process is completed, you and your management
team will do a "road show" to present your company to the stock brokers
who will then sell your stock to the public investors. Assuming they can
successfully sell your issue, youll receive your money. Then it's simple, all
you have to do is make a lot more money with the proceeds so as to increase
the value of your, your teams and the public investors stock.








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IPO SCAMS
YES BANK Ltd. CASE
The modus operandi adopted in manipulating the YES Bank Ltd (YBL)'s
initial public offering (IPO) allotment involved opening of over 7,500
benami dematerialised accounts.
These accounts were with the National Securities Depository Ltd (NSDL)
through Karvy Stockbroking Ltd (Karvy-DP). Of the 13 erring entities, the
chief culprits identified by SEBI were Ms Roopalben Panchal and Sugandh
Estates and Investments Pvt Ltd.
While Ms Panchal opened 6,315 benami DP accounts, another entity
Sugandh opened 1,315 benami accounts. Each of these accounts applications
were made for 1,050 shares, paying application money of Rs 47,250 each.
By applying for small lots (1,050 shares through each accounts), they
misused the retail allotment quota stipulated for IPOs. The shares allotted in
IPO to the benamis of Ms Panchal and Sugandh would have otherwise gone
to genuine retail applicants.
The IPO of YBL opened on June 15, 2005 and its shares were listed on the
BSE and the NSE on July 12, 2005.
It was observed that Ms Panchal had transferred 9,31,600 shares to various
entities in seven off-market transactions on July 11 - a day prior to the listing
and commencement of trading on the stock exchanges. In order to get an
allotment of 9,31,600 shares, Ms Panchal would have had to apply for crores
of shares involving many crores of rupees in application money.



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However, Ms Panchal's name did not appear in the list of top 100 public
issue allottees. Thus, it was suspected that Ms Panchal must have made
multiple applications or that other applicants were acting as a front for her.

Ms Panchal had applied for only 1,050 shares in the YES Bank IPO, paying
the application money of Rs 47,250. And she did not receive any allotment
in the IPO. On July 6, Ms Panchal received 150 shares each from 6,315
allottees through off-market transactions aggregating 9,47,250 YBL shares.

Curiously, as per the dematerialised account data furnished by NSDL, of the
above 6,315 entities as many as 6,221 entities have a same address in
Ahmedabad. There are three more addresses of locations in Ahmedabad,
which have been linked to Ms Panchal. All the 6,315 entities have their bank
accounts with Bharat Overseas Bank and demat accounts with Karvy-DP.

By applying for the maximum possible number of shares per applicant while
being categorised as retail applicant and by putting in large number of
applications in the lot of 1,050 shares, Ms Panchal and her associates (real or
fictitious) have attempted to corner the maximum possible number of shares
in the IPO allotment.

This tantamounts to an abuse of IPO allotment process, the SEBI order said.
A similar modus operandi was adopted by Sugandh, which received 150
shares each from 1,315 dematerialised accounts aggregating 1,97,250 shares
in off market transactions.



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According to SEBI findings, Ms Panchal and others booked profits to the
tune of about Rs 1.70 crore on the day of the listing of YES Bank shares.

SEBI unearths another IPO scam in IDFC
SEBI on Thursday 12
th
Jan 06 unearthed yet another abuse of IPO norms in
the IDFC's initial public offering (IPO) where a few investors opened over
14,000 dematerialised accounts to corner large number of shares of the
company. This is the second such incident, after a similar such violations
were detected in the YES Bank's IPO.

SEBI said in IDFC's IPO too four investors opened as many as 14,807
dematerialized accounts with Karvy-DP and "strangely", all these account
holders have their bank accounts with Bharat Overseas Bank Ltd,
Ahmedabad. SEBI order said: "further probe is required for examining the
systemic fault, if any, of the registrar Karvy-RTI i.e. Karvy Computer Shares
P Ltd, and the lead managers Kotak Mahindra Capital Company Ltd, DSP
Merrill Lynch Ltd and SBI Capital Markets Ltd in identifying and weeding
out the benami applications."

Reference is being made to the RBI to examine the role of BhOB, HDFC
Bank, Indian Overseas Bank, ING Vysya Bank and Vijaya Bank in opening
the bank accounts of these benami entities and apparently funding them.

According to SEBI, Karvy-DP, which was also named in the YES Bank IPO
case, has not adhered to `Know-your-Client' norms, as per the reports of
inspection submitted by NSDL and CDSL on the DP. Also, some of the
documents collected by CDSL during the course of inspection show that


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Karvy-DP has obtained letters purportedly issued by the banks' concerned
such as BhOB as proof of identity and proof of address of the person for the
purpose of opening dematerialised accounts.

"It is seen that one branch manager has on the same date signed as
authorized signatory of different branches of the bank. This raises a doubt as
to the authenticity of the bank documents obtained by Karvy-DP for opening
dematerialised accounts," the SEBI order by its Whole-time Director Mr G.
Anantharaman said. SEBI also banned four investors (in whose names the
multiple accounts were opened) viz., Ms Roopalben Nareshbhai Panchal
(who was also named in the YES Bank IPO scam), Sugandh Estates &
Investments P Ltd, Mr Purshottam Ghanshyam Budhwani and Mr Manojdev
Seksaria from doing any kind of transactions in the securities market, till
further directions.

Another 35 firms were also barred from participating in the IPOs in the
future, till further orders, the SEBI order said.












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MARUTI Case

Fictitious Demat A/cs opened in 2003 itself
`First IPO in which key players took part was Maruti'
DPs have been accused by SEBI of not fully implementing the `maker-
checker' concept, data entry errors, scanning of officials' signatures, and
appointing themselves as the second holder.

Description
Some of the demat accounts that were used to manipulate allotments in the
initial public offer of Yes Bank and IDFC were opened during 2003, and not
in the last year as was earlier believed. The first IPO in which the key
operators have participated was that of Maruti Udyog Ltd, in June 2003,
though the numbers of fictitious demat accounts were not very high then, the
interim order from Securities and Exchange Board of India has said.
SEBI's investigations have now pegged that a "total of 24 key operators have
indulged in abusive practices in respect of 21 IPOs".
The evidence against Karvy DP has stemmed from the fact that almost all
the demat accounts which served as conduits for these master account
holders were held with Karvy DP, according to the order. These 24 operators
have 34 demat accounts; of which 16 demat accounts are held with Karvy
DP.







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Due Diligence Not Taken
The market regulator's investigations have pointed out that, while opening
demat accounts the depository participants were not exercising due
diligence. Persons involved in the scam have collected proofs of identity and
addresses from groups of persons and used this to open bogus bank
accounts.

Inter-linkages
The master account holders were found to have made off-market transfer of
the IPO shares to various common groups of entities who appear to be their
principals. It is seen that some of the master account holders have also made
off-market transfers amongst themselves. This shows that there are inter-
linkages amongst the master account holders as well as between groups of
master account holders and their principals, the order said.
Depository participants have been accused by SEBI of not fully
implementing the `maker-checker' concept, data entry errors, scanning of
officials' signatures, and appointing themselves as the second holder,
With some of the DPs also acting as brokers, stock exchanges have been
advised to examine the role and involvement of brokers and sub-brokers by
way of participation in IPOs either directly or indirectly and their dealings in
the shares subsequent to listing. Exchanges are to submit a report on this
within a month.







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SEBI bars Karvy
Alleged involvement in IPO allotment scam

In the dock Ban on several entities including HDFC Bank, IDBI Bank, ING
Vysya Bank and Motilal Oswal Securities from opening fresh demat
accounts.
The regulator also pulled up NSDL and CDSL for `grave management
lapses'.

Description
SEBI on Thursday 27
th
April 2006 came down heavily on stock market
intermediaries by banning several entities including Karvy group of
companies, Pratik DP and Indiabulls Securities, for their alleged
involvement in the IPO allotment scam. SEBI has also barred several entities
including HDFC Bank, IDBI Bank, ING Vysya Bank and Motilal Oswal
Securities from opening fresh demat accounts.

In an interim order issued today after the second round of investigations, the
capital market regulator has banned 24 entities from buying and selling
securities till further orders.









P a g e | 30
Common address

SEBI also said 15 Depository Participants at National Securities
Depository Ltd (NSDL) including Kotak Securities, Citibank, ICICI Bank,
Bank Paribas and IndusInd Bank had more than 500 demat account holders
sharing the common address.

It asked NSDL to conduct inspection on whether all the demat account
holders are genuine. NSDL has also been asked to check whether the Know
Your Customer norms of SEBI have been duly complied with and take
action against suspect accounts on verification.
Analysts felt the SEBI order was akin to capital punishment for the entities
involved in the securities market scam.

In view of the detailed findings, Karvy DP and Pratik DP prima facie do
not appear to be fit to deal in securities market as SEBI-registered
intermediaries. Appropriate quasi-judicial proceedings are being initiated
against the two DPs," the 252-page order issued late in the evening said.

SEBI said the other business groups of Karvy appear to have acted in
concert in the gamut of IPO manipulations. "I further direct Karvy Stock
Broking Ld, Karvy Computer Share PVT Ltd, Karvy Investor Services and
Karvy Consultants not to undertake fresh business as registrar to the issue
and share transfer agent," Mr G Anantharaman, Whole-Time Member,
SEBI, said.




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NSDL, CDSL pulled up

The regulator also pulled up NSDL and CDSL for `grave management
lapses'. The findings revealed "contributory negligence" on the part of the
depositories and their managements.

"The promoters of NSDL and CDSL are directed to take all appropriate
actions including revamping of management which clearly has allowed
matters to come to such a sorry pass," the order said.
The order, to be treated as a `show-cause notice', has given 15 days time to
the parties named for filing objections.

IPO scam: HDFC Bank, 2 others fined

The Reserve Bank of India on Monday 27
th
Feb 2006 fined HDFC Bank,
IDBI and ING Vysya Bank for violation of Know Your Customer norms and
other irregularities in relation to the recent IPO scam.

HDFC Bank has been slapped with the highest penalty of Rs 25 lakh; ING
Vysya Bank - Rs 10 lakh and IDBI Ltd Rs 5 lakh.
This is the second time HDFC Bank has been fined for violation of KYC
norms. In January, the bank was imposed a penalty of Rs 5 lakh.
According to an RBI release, these banks have been fined, "for violation of
regulations on KYC norms, for breach of prudent banking practices and for
not adhering to its directives/guidelines relating to loans against shares/
IPO."



P a g e | 32
Salient Features of IPO scam

Modus operandi
Current account opened in the name of multiple companies on the
same date in the same branch of a bank
Sole person authorized to operate all these accounts who was also a
Director in all the companies
Identity disguised by using different spelling for the same name in
different companies
Multiple accounts opened in different banks by the same group of
joint account holders
Huge funds transferred from companies accounts to the individuals
account which was invested in IPOs
Loans/ overdrafts got sanctioned in multiple names to bypass limit
imposed by RBI
Loans sanctioned to brokers violating guidelines
Multiple DP accounts opened to facilitate investment in IPO
Large number of cheques for the same value issued from a single
account on the same day
Multiple large value credits received by way of transfer from other
banks
Several accounts opened for funding the IPO on the request of
brokers, some were in fictitious names
Refunds received got credited in brokers a/cs
Margin money provided by brokers through single cheque
Nexus between merchant banker, brokers and banks suspected



P a g e | 33
Operational deficiencies
Factors that facilitated the scam
Photographs not obtained
Proper introductions not obtained
Signatures not taken in the presence of bank official
Failure to independently verify the identity and address of all joint
account holders
Directors identity/ address not verified
Customer Due Diligence done by a subsidiary
Objective of large number of jt. account holders opening account not
ascertained
Purpose of relationship not clearly established
Customer profiling based on risk classification not done
Poor monitoring and reporting system due to inadequate appreciation
of ML issues
Absence of investigation about use and sources of funds
Unsatisfactory training of personnel
No system of fixing accountability of bank officials responsible for
opening of accounts and complying with KYC procedures
Ineffective monitoring and control









P a g e | 34
Measures to prevent scams
An analysis of IPO scam clearly brings out the laxity on the part of
banks to scrupulously implement the KYC/AML guidelines issued
from time to time. It also raises serious concerns about the integrity of
the systems & systemic risks.
While scams may still happen despite best of preventive measures, it
should not undermine the efforts being made to insulate the financial
sector from money laundering. It is going to be a long fight with
constant need to improve and innovate new strategies.
It is important to understand that the risks banks run as a result of non-
compliance with regulatory and statutory guidelines can cause severe
reputational and financial damage to individual banks and the Indian
banking system as a whole
Need for comprehensive operational framework implementing
important aspects of KYC instructions e.g.
Documentation procedure for opening of all types of customer
accounts;
Clarity in understanding of risk classification of accounts and proper
customer profiling
Ongoing monitoring of medium and high risk accounts
Enhanced due diligence in respect of accounts with beneficial
ownership, non-face to face transactions, group companies, high risk
businesses and wire transfers etc.
Prompt reporting of cash and suspicious transactions to Principal
Officer by branches
An effective audit machinery


P a g e | 35
Good understanding of regulatory and statutory prescriptions in letter
and spirit
Clear demarcation of duties and responsibilities
Violations to be dealt with sternly



P a g e | 36
DEFINITIONS AND ABBREVIATIONS

I. CONVENTIONAL/ GENERAL TERMS

Term Description
AGM Annual General Meeting of Pratibha Industries
Limited
Articles / Articles of
Association / AOA
Articles of Association of Pratibha Industries Limited
Companies Act /
Act
The Companies Act, 1956 as amended from time to
time
Depository A Company formed and registered under the
Companies Act, 1956 and which has been granted a
certificate of registration under sub-section (1A) of
Section 12 of the Securities and Exchange Board of
India Act, 1992
Depositories Act The Depositories Act, 1996, as amended from time to
time
Depository
Participant
A depository participant registered as such under sub-
section (1A) of Section 12 of the Securities and
Exchange Board of India Act, 1992
FEMA Foreign Exchange Management Act, 1999, as
amended from time to time, and the regulations
framed there under
FDI Foreign Direct Investment
FII Foreign Institutional Investor [as defined under


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FEMA (Transfer or Issue of Security by a Person
Resident Outside India) Regulations, 2000] registered
with SEBI.
Financial year /
Fiscal year / FY
Period of twelve months ended March 31 of that
particular year
Indian GAAP Generally accepted accounting principles in India
I.T. Act The Income-Tax Act, 1961, as amended from time to
time
Memorandum /
MOA
Memorandum of Association of Pratibha Industries
Limited
NRI / Non-Resident
Indian
A person resident outside India who is a citizen of
India or is person of Indian origin as defined in
Foreign Exchange Management (Deposit)
Regulations, 2000]
ROC Registrar of Companies, Maharashtra situated at 100,
Everest Building, Marine Lines, Mumbai 400002
RBI Reserve Bank of India
SCRR Securities Contracts (Regulation) Rules, 1957, as
amended from time to time.
SEBI The Securities and Exchange Board of India,
constituted under the SEBI Act, 1992
SEBI Act Securities and Exchange Board of India Act, 1992 as
amended from time to time
SEBI/(DIP)
Guidelines
SEBI (Disclosure and Investor Protection)
Guidelines, 2000, as amended, including instructions
and clarifications issued by SEBI from time to time


P a g e | 38
II.OFFERING RELATED TERMS

Allotment Issue of Equity Shares of the Company pursuant to
the Public Issue to the successful Bidders.
Allottee The successful Bidder to whom the Equity Shares are
being issued.
Bankers to the Issue ICICI Bank Limited, Standard Chartered Bank,
Deutsche Bank, Kotak Mahindra Bank Limited
Bid An indication to make an offer made during the
Bidding Period by a prospective investor to subscribe
to Equity Shares of the Company at a price within the
Price Band, including all revisions and modifications
thereto
Bid Price / Bid
Amount

The amount equal to highest value of the optional
Bids indicated in the Bid cum Application Form and
payable by the Bidder on submission of the Bid in the
Issue
Bid Opening Dates /
Issue Opening Date
The date on which the Syndicate Members shall start
accepting Bids for the Issue, which shall be the date
notified in a widely circulated English national
newspaper, a Hindi national newspaper and a Marathi
regional newspaper
Bid Closing Date /
Issue Closing Date
The date after which the Syndicate Members will not
accept any Bids for the Issue, which shall be notified
in a widely circulated English national newspaper, a
Hindi national newspaper and a Marathi regional


P a g e | 39
newspaper
Bid cum
Application Form
The Form in terms of which the Bidder shall make an
offer to purchase the Equity Shares of the Company
and which will be considered as the application for
allotment of the Equity Shares in terms of this Red
Herring Prospectus
Bidder Any prospective investor who makes a Bid pursuant
to the terms of this Red Herring Prospectus
Bidding Period /
Issue Period
The period between the Bid/Issue Opening Date and
the Bid/Issue Closing Date inclusive of both days and
during which prospective Bidders can submit their
Bids
Book Building
Process
Book building route as provided under Chapter XI of
the SEBI Guidelines, in terms of which, this Issue is
being made
BRLM Book Running Lead Manager to the Issue, in this case
being Vivro Financial Services Private Limited
CAN / Confirmation
of Allocation Note
The note or advice or intimation of allocation of
Equity Shares sent to the Bidders who have been
allocated Equity Shares in accordance with the Book
Building Process
Cap Price The higher end of the Price Band, above which the
Issue Price will not be finalized and above which no
bids will be accepted
Cut-off price Cut-off price refers to any price within the Price
Band. A Bid submitted at Cut-off is a valid Bid at all


P a g e | 40
price levels within the Price Band
Designated Stock
Exchange
Bombay Stock Exchange Limited
Designated Date The date on which the funds are transferred from the
Escrow Account of the Company to the Public Issue
Account after the Prospectus is filed with the ROC,
following which the Board of Directors shall allot
Equity Shares to successful bidders
Red Herring
Prospectus
This Red Herring Prospectus issued in accordance
with Section 60B of the Companies Act, which does
not have complete particulars on the price at which
the Equity Shares are offered and size of the Issue. It
carries the same obligations as are applicable in case
of a Prospectus and will be filed with ROC at least
three days before the bid/offer opening date. It will
become a Prospectus after filing with ROC after the
pricing
Equity Shares Equity Shares of the Company of the face value Rs.
10 each, unless otherwise specified in the context
thereof
Escrow Account

Account opened with the Escrow Collection Bank(s)
and in whose favour the Bidder will issue cheques or
drafts in respect of the Bid Amount and refunds (if
any) of the amount collected to the Bidders
Escrow Agreement Agreement entered into amongst the Company, the
Registrar, the Escrow Collection Bank(s), the


P a g e | 41
Syndicate Members and the BRLMs for collection of
the Bid Amounts and refunds (if any) of the amounts
collected to the Bidders
Escrow Collection
Bank(s)
ICICI Bank Limited, Standard Chartered Bank,
Deutsche Bank, Kotak Mahindra Bank Limited
First Bidder The Bidder whose name appears first in the Bid cum
Application Form or Revision Form
Floor Price

The lower end of the Price Band, below which the
Issue Price will not be finalized and below which no
Bids will be accepted
Fresh Issue / Issue /
Public Issue / Offer
Public Issue of 42,85,000 new Equity Shares of Rs.
10/- each for cash at the Issue Price of Rs. [] per
equity share aggregating to Rs. [] Lakhs by the
Company in terms of this Red Herring Prospectus
Issue Account

Account opened with the Banker to the issue to
receive monies from the Escrow Accounts on the
Designated Date
Issuer Pratibha Industries Limited
Issue Price The final price at which Equity Shares will be issued
and allotted in terms of this Red Herring Prospectus,
as determined by the Company in consultation with
the BRLMs, on the Pricing Date
Margin Amount The amount paid by the Bidder at the time of
submission of his/her Bid, being 10% to 100% of the
Bid Amount
Members of the The BRLM and the Syndicate Members


P a g e | 42
Syndicate
Non-Institutional
Bidders
All Bidders that are not Qualified Institutional
Buyers, or Retail Individual Bidders and who have
Bid for Equity shares for an amount more than
Rs.1,00,000.
Non-Institutional
Portion
The portion of the Issue being a minimum of 5,78,475
Equity Shares of Rs. 10/- each available for allocation
to Non-Institutional Bidders
Pay-in-date The last date specified in the CAN sent to the Bidders
Pay-in-Period

This term means
(i) With respect to Bidders whose Margin Amount is
100% of the Bid Amount, the period commencing
on the Bid/issue Opening Date and extending until
the Bid/issue Closing Date, and
(ii) With respect to Bidders whose Margin Amount is
less than 100% of the Bid Amount, the period
commencing on the Bid/issue Opening Date and
extending until the closure of the Pay-in-Date
Price Band The Price band of a minimum price (Floor Price) of
Rs.100/- and the maximum price (Cap Price) of Rs.
120/- and includes revision thereof
Pricing Date The date on which the Company in consultation with
the BRLM finalizes the Issue Price
Promoters Mr. Ajit B. Kulkarni, Mrs. Usha B. Kulkarni, Mr.
Datta B. Kulkarni, Mr. Vinayak B. Kulkarni, Mr.
Ramdas B. Kulkarni and Pratibha Shareholding


P a g e | 43
Private Limited
Prospectus The Prospectus filed with the ROC containing, inter
alia, the Issue Price that is determined at the end of
the Book Building Process, the size of the Issue and
certain other information
Public Issue
Account

In accordance with Section 73 of the Companies Act,
1956, an account opened with the Banker(s) to the
Issue to receive monies from the Escrow Account for
the Issue on the Designated Date
QIB Portion

The portion of the net issue being not less than
mandatory 19,28,250 Equity Shares of Rs. 10 each at
the Issue Price, available for allocation to QIBs
Qualified
Institutional
Buyers/ QIBs
Public Financial Institutions as specified in Section
4A of the Companies Act, Scheduled Commercial
Banks, Mutual Funds registered with SEBI, Foreign
Institutional Investors registered with SEBI,
Multilateral And Bilateral Development Financial
Institutions, Venture Capital Funds registered with
SEBI, Foreign Venture Capital Investors registered
with SEBI, State Industrial Development
Corporations, Insurance Companies registered with
the Insurance Regulatory And Development
Authority (IRDA), Provident Funds with a minimum
corpus of Rs.2500 Lakhs and Pension Funds with a
minimum corpus of Rs. 2500 Lakhs.
Retail Individual Individual Bidders (including HUFs and NRIs) who


P a g e | 44
Bidders have not Bid for an amount in excess of Rs.1,00,000/-
in any of the bidding options in the Issue.
Retail Portion

The portion of the Net Issue being a minimum of
13,49,775 Equity Shares of Rs.10 each available for
allocation to Retail Individual Bidder(s)
Registrar/ Registrars
to the Issue
Intime Spectrum Registry Limited
Revision Form The Form used by the Bidders to modify the quantity
of Equity Shares or the Bid Price in any of their Bid
cum Application Forms or any previous Revision
Form(s).
Syndicate
Agreement
The agreement to be entered into among the
Company and the members of the Syndicate in
relation to the collection of Bids in this Issue
Syndicate Members

Intermediaries registered with SEBI and eligible to
act as underwriters. Syndicate Members are appointed
by the BRLM and include the BRLM
Syndicate The Syndicate Members collectively
TRS or Transaction
Registration Slip
The slip or document issued by the Syndicate
Members to the Bidder as proof of registration of the
Bid
Underwriters The BRLM and Syndicate Members
Underwriting
Agreement

The Agreement among the BRLM, the Syndicate
Members and the Company to be entered into on or
after the Pricing Date



P a g e | 45
Bibliography
Web Based
www.investopedia.com
www.sebi.com
www.vivro.net
www.intimespectrum.com
www.pratibhagroup.com
Book Based
Share Market Book By Tarun Shah
IPO Decision By Jason Draho
Industry Based
PRATIBHA GROUP OF COMPANIES